New private equity investment provides first opportunity for cash out.
Focus Financial Partners LLC, the seven-year-old national partnership of investment advisers, has received a $216 million investment from private-equity investor Centerbridge Capital LP that will allow shareholders to cash out for the first time.
The investment will give Centerbridge a minority stake in the firm, according to Focus founder and chief executive Rudy Adolf.
“This is a liquidity event for every shareholder,” said Mr. Adolf. “Virtually all of the money is going to be used to provide liquidity to our investor groups.”
At the top of that list is Focus's original two private-equity backers, Polaris Partners and Summit Partners. The two firms remain minority shareholders in Focus, according to Mr. Adolf. Last year, Summit reportedly lobbied for a sale of the firm.
As with Polaris and Summit, Centerbridge's investment is in the form of preferred equity carrying an undisclosed dividend. Mr. Adolf did not disclose the preferred dividend rates of the two earlier rounds of equity financing for his firm, but said the Centerbridge deal involved “a step down in the dividend paid to original shareholders.”
The deal is a positive sign for Focus, said David DeVoe, chief executive of investment banking consultant DeVoe & Co. “This demonstrates that smart money has confidence in the independent model,” he said. “This is a large well-respected organization casting a strong vote for the RIA business model.”
Launched in 2006, Focus is the largest aggregator of independent RIA firms in the country, with partner firms that now manage $62 billion in client assets and generate more than $250 million in revenue annually, according to a statement. Over the last year, it has executed 10 transactions involving $14 billion in assets. Focus does not report earnings.
Mr. Adolf said that between the cash flow the business now generates and a $320 million line of credit from a consortium of banks, Focus does not need any additional capital to continue its growth trajectory. He added that the firm was ready to go public now, but that capital markets are not conducive to an initial public offering.
“We're ready for an IPO now, but the markets aren't ideal at this point,” Mr. Adolf said. “We want a stronger, more predictable market before we undertake that transaction.
Partner firms have a choice as to how much of the stock that they own in the company they will sell.
Bob Kresek, a principal at Buckingham Asset Management and one of the first advisers to join Focus in 2006, hasn't yet decided on what he'll do.
“I was one of the first firms at Focus, so I probably opted for more cash than many,” Mr. Kresek said. “This is the first time Focus stock has had some liquidity. I'll probably sell some and hold on to the rest.”
